The proper way to start investing in stocks in Kenya
By Nairobi Stocks Review
People invest in stocks for various reasons. Some seek an additional source of income while others aim to save for the future. You can also achieve both. How do you start investing in stocks in Kenya?
The Nairobi Securities Exchange is where public trading in stocks or company shares take place in Kenya. There are more than 60 NSE-listed companies across a diverse range of industries such as banking, agriculture, manufacturing, telecom and energy.
How the stock investing works in Kenya
People come to the stock market to try to make money. Before you start investing in NSE shares, it is important to know how people make money in the stock market. There are two main ways to make money with stocks: dividends and capital gain.
When a company makes a profit, it may decide to distribute a portion of it to its shareholders. That is called dividend. Many profitable companies have regular dividend distribution programmes. The frequency of dividend payment can be every six months or yearly. If you are seeking an extra source of income, a company that pays dividends is your best bet.
You have a capital gain when the stock you purchased appreciates in value. For example, if you bought KenGen shares at Ksh3 in January and by December the price moves to Ksh4.5, your capital gain is Ksh1.50 per share. If you have 50,000 shares in the company, your total capital gain would be Ksh75,000 after one year.
Your gains would increase if the stock continues to appreciate and you continue holding it. Therefore, stocks that appreciate in value quickly tend to attract investors seeking to save for the future.
How to start investing in stock in Kenya
The first step is to open a stock trading account called a CDS account. It is like a bank account, except it handles stocks, not cash. When you buy a stock, it is moved to your CDS account just like money goes to your bank account when you make a cash deposit.
Similarly, when you sell a stock, it is removed from your CDS account just like money is taken out of your bank account when you make a withdrawal.
You can open a CDS account with an investment bank or stockbroker. Once you have the account set up, you can choose the companies you want to invest in, decide the amount of shares to buy and place your order. You can do all this on your laptop if you choose a broker that supports online stock trading. (Read How to choose the best stockbroker for beginners)
It is easy to start investing in stocks in Kenya. Perhaps one more thing to remember is that the minimum number of shares you can buy in every transaction is 100 shares. (Read How much do you need to start investing in stocks in Kenya?)